Morgan Stanley 2014 Annual Report Download - page 162

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
approximately $108 million in 2012 in connection with the sale. The results of Quilter are reported as
discontinued operations within the Company’s Wealth Management business segment for all periods presented.
Saxon. On October 24, 2011, the Company announced that it had reached an agreement to sell Saxon, a
provider of servicing and subservicing of residential mortgage loans, to Ocwen Financial Corporation. The
transaction, which was restructured as a sale of Saxon’s assets was substantially completed in 2012. Net revenues
for Saxon were $79 million for 2012, and pre-tax losses were $35 million, $64 million and $187 million for
2014, 2013 and 2012, respectively. Pre-tax results for 2012 included a gain of approximately $51 million
primarily resulting from an increase in the fair value of Saxon and a provision of approximately $115 million
related to a settlement with the Board of Governors of the Federal Reserve System (the “Federal Reserve”)
concerning the independent foreclosure review related to Saxon. The results of Saxon are reported as
discontinued operations within the Company’s Institutional Securities business segment for all periods presented.
Remaining pre-tax gain (loss) amounts of $16 million, $(7) million and $42 million for 2014, 2013 and 2012,
respectively, are included in discontinued operations, primarily related to the prior sale of the Company’s retail
asset management business and a principal investment.
Prior-period amounts have been recast for discontinued operations.
Basis of Financial Information. The Company’s consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require the
Company to make estimates and assumptions regarding the valuations of certain financial instruments, the
valuation of goodwill and intangible assets, compensation, deferred tax assets, the outcome of legal and tax
matters, allowance for credit losses and other matters that affect its consolidated financial statements and related
disclosures. The Company believes that the estimates utilized in the preparation of its consolidated financial
statements are prudent and reasonable. Actual results could differ materially from these estimates. Intercompany
balances and transactions have been eliminated.
Consolidation. The consolidated financial statements include the accounts of the Company, its wholly owned
subsidiaries and other entities in which the Company has a controlling financial interest, including certain
variable interest entities (“VIE”) (see Note 7). For consolidated subsidiaries that are less than wholly owned, the
third-party holdings of equity interests are referred to as noncontrolling interests. The portion of net income
attributable to noncontrolling interests for such subsidiaries is presented as either Net income (loss) applicable to
redeemable noncontrolling interests or Net income (loss) applicable to nonredeemable noncontrolling interests in
the Company’s consolidated statements of income. The portion of shareholders’ equity of such subsidiaries that
is nonredeemable is presented as Nonredeemable noncontrolling interests, a component of total equity, in the
Company’s consolidated statements of financial condition.
For entities where (1) the total equity investment at risk is sufficient to enable the entity to finance its activities
without additional subordinated financial support and (2) the equity holders bear the economic residual risks and
returns of the entity and have the power to direct the activities of the entity that most significantly affect its
economic performance, the Company consolidates those entities it controls either through a majority voting
interest or otherwise. For VIEs (i.e., entities that do not meet these criteria), the Company consolidates those
entities where the Company has the power to make the decisions that most significantly affect the economic
performance of the VIE and has the obligation to absorb losses or the right to receive benefits that could
potentially be significant to the VIE, except for certain VIEs that are money market funds, are investment
companies or are entities qualifying for accounting purposes as investment companies. Generally, the Company
consolidates those entities when it absorbs a majority of the expected losses or a majority of the expected residual
returns, or both, of the entities.
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